JOSE GATCHALIAN, ET AL., plaintiffs-appellants, vs.

THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

G.R. No. L-45425 April 29, 1939

FACTS:

The plaintiffs purchased, in the ordinary course of business, from one of the duly
authorized agents of the National Charity Sweepstakes Office one ticket bearing No. 178637 for
the sum of two pesos (P2) and that the said ticket was registered in the name of Jose Gatchalian
and Company. As a result of the drawing of the sweepstakes tickets, said ticket bearing No.
178637 won one of the third prizes in the amount of P50,000 and that the corresponding check
covering the above-mentioned prize of P50,000 was drawn by the National Charity Sweepstakes
Office in favor of Jose Gatchalian & Company against the Philippine National Bank, which
check was by Jose Gatchalian & Company.

Subsequently, Jose Gatchalian was required by income tax examiner Alfredo David to
file the corresponding income tax return covering the prize won by Jose Gatchalian & Company.
Said return was signed by Jose Gatchalian. The CIR made an assessment against Jose Gatchalian
& Company requesting the payment of the sum of P1,499.94. The plaintiffs sent to defendant a
reply, requesting exemption from payment of the income tax to which reply there were enclosed
fifteen (15) separate individual income tax returns filed separately by each one of the plaintiffs
and a statement of sale signed by Jose Gatchalian showing the amount put up by each of the
plaintiffs. Thereafter, to avoid embarrassment, the said plaintiffs paid under protest the sum of
P601.51 and requested to pay the balance through monthly installments, to which the CIR
agreed. The plaintiffs once again paid under protest the sum of P1,260.93 for its alleged taxes
and penalties. After which, the plaintiffs formally protested the said payments and requested the
refund thereof. Unfortunately, the CIR overruled the protest and subsequently denied the refund.

ISSUE: Whether the plaintiffs formed a partnership or merely a community of property

without a personality of its own, thus exempt from the payment of income tax.

HELD:

There is no doubt that if the plaintiffs merely formed a community of property the latter
is exempt from the payment of income tax under the law. But according to the stipulation
facts, the plaintiffs organized a partnership of a civil nature because each of them put up
money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which
they may win, as they did in fact in the amount of P50,000 (article 1665, Civil Code). The
partnership was not only formed, but upon the organization thereof and the winning of the prize,
Jose Gatchalian personally appeared in the office of the Philippines Charity Sweepstakes, in his
capacity as co-partner, as such collection the prize, the office issued the check for P50,000 in
favor of Jose Gatchalian and company, and the said partner, in the same capacity, collected the
said check. All these circumstances repel the idea that the plaintiffs organized and formed a
community of property only.

Having organized and constituted a partnership of a civil nature, the said entity is the one
bound to pay the income tax which the defendant collected under the aforesaid section 10 (a) of
Act No. 2833, as amended by section 2 of Act No. 3761. There is no merit in plaintiff's
contention that the tax should be prorated among them and paid individually, resulting in their
exemption from the tax.